Earn Luxury Money is Difficult? Kering Group Anticipates almost a Halving of Operating Profit
Gucci is currently facing its most challenging period. According to Fashion Business Alert, in the first quarter ended 31 March, French luxury group Kering Group sales fell 10% year-on-year to €4.5 billion, or approximately $4.8 billion, at constant exchange rates, and plunged 11% at immediate exchange rates.
As a result, the group now expects first-half operating profit to plunge 40% to 45%, far exceeding analysts' previous forecasts of a 24% to 30% drop.
By brand, accounting for half of the group's sales and two-thirds of the profits of the core brand Gucci, sales fell 18% to 2.1 billion euros at constant exchange rates, a plunge of 21% at current exchange rates. This represents a slight improvement on the analysts' expectations, although it is still significantly higher than the previous quarter's decline of 4%. The brand's retail revenue declined by 19%, largely due to a significant decrease in Asia-Pacific. Meanwhile, wholesale revenue decreased by 7% year-on-year.
Sales at Saint Laurent, which previously replaced Gucci as the growth engine, also declined by 6% year-on-year to €740 million at constant exchange rates and 8% at immediate exchange rates. There was a 4% decline in retail and a 25% drop in wholesale revenues, while royalties and other revenues increased by 27%. Three feature-length films produced by Saint Laurent's production company were previously selected as part of the Official Selection of the 2024 Cannes International Film Festival.
Bottega Veneta's first-quarter sales increased by 2% year-on-year to €390 million at constant exchange rates, but decreased by 2% at immediate exchange rates. Retail revenues grew by 9% thanks to double-digit growth in North America, Western Europe and the Middle East, while wholesale revenues declined by 25%.
First-quarter sales in the Other Brands division declined 6% year-on-year to €820 million at constant exchange rates and 7% at immediate exchange rates. During the period, Balenciaga benefited from its early autumn '24 show in Los Angeles last December and recorded double-digit growth with strong sales in North America. Alexander McQueen, which is in a period of creative transition, saw double-digit sales growth at both Brioni and Boucheron.
Kering's eyewear division achieved a 9% year-on-year increase in first-quarter sales, reaching €530 million at constant exchange rates and a 24% jump at immediate exchange rates. Among these figures, the eyewear business revenue rose 7% to €460 million, including the revenue generated by the beauty business, while other business revenue reached €0.7 billion. In February of last year, Kering Group established a beauty division and subsequently acquired the niche perfume brand Creed for 3.5 billion euros. The transaction was completed in the fourth quarter of last year.
Kaiyun Group has stated that the decline in Gucci revenue and the continued investment required for the brand will result in a reduction in profits for the company in the first half of the year. Furthermore, the company anticipates that Gucci's market performance will not result in an improvement in the second quarter.
In the context of the current winter in the luxury industry and the brand's significant budget cuts, Gucci is bucking the trend by increasing its marketing investment. The company expects to increase the proportion of spending on advertising and promotions to more than 8 per cent of sales this year. This bet on marketing is also evident in Gucci's recent ongoing personnel adjustments.
In February of this year, the Kering Group officially appointed Gucci interim CEO Jean-François Palus to assume the role of CEO at Gucci, and further clarified the specific scope of responsibility of Francesca Bellettini, who was promoted to Deputy CEO of Kering Group in July. In addition to her role in developing Kering Group's brands, she will work closely with Jean-François Palus to achieve the best results for the Gucci Group. She will also be responsible for the brand's development. François Palus is tasked with building a strong management team for Gucci.
For now, Kering is lagging behind LVMH, which achieved organic revenue growth of 3 per cent in the first quarter. Hermes, which has also weathered the recession better than most of its peers, is set to report sales results this Thursday. As of the time of writing, LVMH shares have increased by 9% year-to-date, Hermès by 23%, while Kering has decreased by 12% with a current market capitalisation of approximately €39.47 billion.
